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Character Group CCT - quick and simple trade


rimmy2000

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Character Group (CCT)

Are a manufacturer of children’s toys. They have some important licensing agreements with popular children’s characters, the most notable probably Peppa Pig and Teletubbies.

 

The company trades via 21m ordinary shares, and has a market cap - at present of £88m. This share is quite hard to buy and sell, and Level 2 shows an EMS of 500 shares.

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This makes it particularly volatile and also susceptible to under and over reactions.

 

The share is currently quite attractively or modestly priced, being on a forward PE of 11. The key toys give CCT some serious pricing power and it is able to to earn a Return on Capital Employed (ROCE) of almost 28% - this is a seriously good sign that the company does not have to invest a great deal to see a return on its capital, e.g. every 100p in capex can generate 28p profit. This is always a good measure to look for.

 

CCT warned on profits on 11 Oct and I picked up some stock at 384p, the price then began to consolidate and I bought more at £4.

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On 05 Dec the company was due to release its quarter 4 results, I sold on the price breakdown that day. A shame as it looked as though it was poised to breakout to the upside but this was not a risk worth taking, for me. Sure enough Q4 results produced some doubts over the wider toy industry, so whilst the company itself is solid, the market into which it sells is undergoing headwinds. Notably Toys R Us announcing a store closure programme, first in the US and now in the UK (  https://www.theguardian.com/business/2017/dec/04/toys-r-us-close-uk-stores )

 

My intention is to sit comfortably, having made a quick profit over the prior two months and monitor the company for future trading updates, especially with the impending Christmas period being so key to sales. Seasonality is clearly evident in CCTs sales (see below, highlight) so with this in mind it would pay to act prudently.

 

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Here is the corporate site for those wanting to investigate the company further, and a summary of the August results by MD Kiran Shah here via video https://www.research-tree.com//media/character-group-preliminary-results-to-31-august-2017-05-12-2017 

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